The next global bubble is already under way. What happens when the most powerful nation in the world, with a reserve currency everyone trusts and holds, decides to push a big credit expansion — again, at the instigation of our financial sector? The creditworthy borrowers this time are not in the United States — they are in Asia, Latin America, and even Africa. They have little debt and great prospects; for a mere 1 percent per year they can borrow American dollars, spend the funds at home, and turn paper money into real assets. Every great bubble begins with a truly convincing shift in fundamentals.

In the 1990s this was called the “carry trade.” You borrowed from the Japanese at 1 percent and bought anything outside Japan that yielded a bit more (including United States subprime mortgages). The coming American carry trade is the same thing: it weakens the dollar, lifts the economy out of recession through exports, and creates inflation that reduces the real value of our debts.

It will be interesting to see whether this latest scheme works superbly forever or results in a collassal failure some years down the line. But if and when it does fail and results in another recession it will kind of suck.

Are recessions a normal and inevitable part of capitalism and free markets as they currently exist, and if so, is there something that can be done to improve the situation?

We are surrounded by codes (some Turing-universal) that make copies of themselves, and by physical machines that spawn virtual machines that in turn spawn demand for more physical machines. Some digital sequences code for spreadsheets, some code for music, some code for operating systems, some code for sprawling, metazoan search engines, some code for proteins, some code for the gears used in numerically-controlled gear-cutting machines, and, increasingly, some code for DNA belonging to individuals who serve as custodians and creators of more code. “It is easier to write a new code than to understand an old one,” von Neumann warned.

The monograph over on Edge discusses von Neumann’s intellectual antecendants and the development of game theory and statistical modelling. It also includes some interesting commentary on our recent economic difficulties. Definitely worth a read.

NEW FICTION: WORLD IN PROGRESS by Lori Ann White: He vaults effortlessly to the smooth countertop and turns to the sea of faces. It’s soapbox time, ready to rant, but he spots a wake in the sea, Bouncer Babe tossing patrons aside, closing fast. He slaps at his waist, and feedback screams through the club. Everyone, including the bouncer, just–stops.

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